Cashier’s Check

What It Means

A cashier’s check is purchased by a customer at a bank as a means of making a payment to a third party. Sometimes referred to as a bank check, a bank draft, or a treasurer’s check, a cashier’s check is written by the bank against its own funds and signed by a bank teller. A cashier’s check is similar to a money order (another form of prepaid check) except that unlike a money order (which can be purchased at the post office and various retail outlets), a cashier’s check can only be issued by a bank; and unlike a money order, for which the maximum amount is usually $1000, a cashier’s check can be written for any amount.

A cashier’s check is considered more secure than a personal check because it is backed by the bank’s funds rather than those of an individual. In other words a cashier’s check is guaranteed not to bounce. (A check is said to bounce when, upon being deposited, it turns out that there are insufficient funds to cover the amount of the check in the account against which it was written.)

A cashier’s check is a fast, convenient, and reliable way of making a payment. When the payee (the party to whom the check is written) receives the check, he or she can cash the check instantly; there is usually no delay time to confirm that the check will clear. Thus, because it is practically the equivalent of cash, a cashier’s check is often preferred as the quickest way to close a sale: once the check has been received by the seller, the transaction is effectively complete.

When Did It Begin

No one knows exactly when the first check was written. Some scholars believe that checks were used in ancient banking systems (in Persia and China, for example) as a convenience for traders who wanted to avoid both the hassle and the risk of transporting large amounts of currency (especially gold) across great distances to do business. No documentary evidence of these practices has been found, however.

The use of checks in modern banking is most reliably traced to early sixteenth-century Holland, when Amsterdam was a major hub of international trade. Not wanting to hold onto large stores of cash, businesspeople began depositing their money with “cashiers,” who agreed to keep the money safe for a fee. When the depositor needed to pay someone, he or she could request that the cashier issue a written order (also known as a bill of exchange) for payment of a specified amount to a specified payee (the person the depositor wanted to pay), who could then exchange the written order for cash.

By the late eighteenth century the use of checks as a method of arranging payments had spread to England and other places in Europe. Check-writing practices evolved during this period, and specialized forms of checks, such as the cashier’s check (then known as bankers’ checks), were introduced.

More Detailed Information

Here is how a cashier’s check works. Felix wishes to purchase a chandelier from an antique dealer, Sally. The price of the chandelier is $2,450. Felix has the funds available in his checking account, but the Sally will not accept a personal check at her antique store for that amount. Felix does not wish to withdraw the money in cash, because he is not comfortable carrying such a large amount of money in his wallet. Instead, Felix decides to purchase a cashier’s check.

At the bank Felix pays the teller (or asks the teller to withdraw from his account) $2,450 plus the small service fee (usually not more than $5) that is charged by the bank. Felix gives his own name and the name of the antique dealer. The teller prints out a cashier’s check that shows the name of the payee (Sally), the name of the remitter (Felix), and the amount ($2,450). The check is signed by the bank teller or another bank official. Felix also receives a receipt for the transaction. When Felix presents the cashier’s check to Sally, he should be able to take home the chandelier right away, because the check is guaranteed by the bank that issued it. Then Sally may either deposit the check into her own bank account or she may cash the check. In either case, she must endorse the check with her signature. If she wishes to cash it, she must also show proper identification (such as a business license, driver’s license, or passport) to prove that she is indeed the party to whom the check was issued.

A cashier’s check has a number of official features to show that it is legitimate. The name of the issuing bank is usually displayed prominently on the check, as well as words designating that it as a cashier’s check. A cashier’s check also has security features to prevent it from being easily counterfeited: these include special ink patterns, watermarks, security threads, and the special bond paper on which it is printed.

If a cashier’s check is lost or stolen, either the remitter or the payee (whoever was in possession of the check at the time) may file a claim with the bank that issued the check. The bank will not act on the claim (the claim does not become effective) for 90 days, however, during which time the check is vulnerable to being cashed. (To cash it would be difficult, given the need to provide the signature and identification of the payee, but not impossible.) Note that it is not possible to place a stop-payment order on a cashier’s check. If after 90 days the check is still missing and has not been cashed, the bank will reissue it.

Recent Trends

The years 2005 and 2006 saw a dramatic rise in the use of counterfeit cashier’s checks by scam artists. In one typical scenario the scam artist sends a cashier’s check as payment for an item he has agreed to purchase or has won in an auction over the Internet. Strangely, however, the cashier’s check is made out for significantly more than the price of the item. The “buyer” asks the seller to ship the item along with the extra money from the cashed cashier’s check. With the latest sophisticated printing techniques, the bank often cannot tell that the check is a fake, and it is deposited into the seller’s account. It may be weeks or even months before the check is recognized as a counterfeit, but when it is, the seller who deposited the check is held responsible for it.

In a similar scenario an unsuspecting victim receives a cashier’s check for a lottery she never entered, along with a message explaining that she will only need to pay the taxes on the winnings after the check is cashed. The scam artist receives the “tax money” from the victim, and the victim is held responsible by the bank for the counterfeit check that represents her “winnings.”